The government yesterday gave away £1.7bn of tax cuts to the road lobby in a move which pleased motoring groups but failed to appease hardline fuel campaigners and infuriated the green lobby.

More than £1bn was spent on fuel tax reductions overall, with 2p per litre knocked off the price of ultra-low sulphur petrol (ULSP) and 3p taken off the equivalent kind of diesel.

Leading oil companies, such as BP, promised to pass on all fuel tax breaks with effect from 6pm last night when the government action took effect.

More than £400m was spent on cutting the rates of vehicle excise duty on private cars and light vehicles of under 1.5 litres while £105m went on reforming the truck licensing system.

The AA motoring organisation said it was "extremely pleased" with the changes although it did not rule out the need for a review of the road tax system.

The RAC's executive director Edmund King said: "Chancellors normally act like modern highwaymen at budget time but this time Flash Gordon has given something back."

Mr King said cutting the level of fuel tax would help the government start to regain the confidence of motorists, but would still leave drivers vulnerable to world petrol prices.

Brynle Williams, one of the fuel protest leaders described the fuel reductions as a sham. He had wanted to see an 8p cut and said the public would see through the government's plans.

Environmental groups accused the chancellor of pandering to truckers and the motorist lobby. They said the measures undermined Tony Blair's green speech on Tuesday when he said he wanted Britain to be a world environmental leader.

"These fuel price reductions will encourage more car use, increase congestion and pollution, and make the problem of climate change even worse," Friends of the Earth said. "Transport is the fastest growing source of CO2 emissions, the main climate changing gas." The National Society for Clean Air believed the introduction of ULSP would reduce emissions of nitrogen oxides by around 5%, but the overall impact on British air quality would be "so small as to be unmeasurable", spokesman Tim Brown said.

He added that cutting fuel duty, coupled with the shifting of the threshold for small car excise duty from 1200cc to 1500cc would reduce the incentive to buy more fuel-efficient vehicles and would probably increase CO2 emissions. "It reinforces the view that the motivation for cutting petrol duty is political, not environmental."

Transport 2000 accused the government of producing "a budget for truckers". Director Stephen Joseph said the government's own research showed that a single lorry can cause up to £28,000 damage to the environment and road system each year.

"Once these costs are included, the biggest lorries are under-taxed by around £30,000 a year. The chancellor has increased these lorry subsidies by over 10%. Instead of giving way to truckers, we need radical reform of lorry taxes, so the biggest lorries - foreign as well as British - travelling the farthest pay the most tax."

But environmental groups welcomed the 6p per kilogram incentives for road fuel gases and 20% duty cut for biodiesel.